Paying the consequences for false business losses

Claiming false business losses results in real consequences

Getting a refund after you submit your return doesn’t mean that a scheme is legitimate. The Canada Revenue Agency (CRA) can and will demand the refund be returned and penalties will be imposed if the scheme is a scam.

A friend, colleague or neighbour told you they got a large tax refund using a fictitious claim. Be skeptical of stories like these! While they may have received a refund initially, the CRA has tracked down—time and again—people who promote or participate in those scams. Chances are we’ll find you and there will be financial consequences. It’s simply not worth the risk.

False business losses

The CRA is familiar with illegal schemes that taxpayers use to try and generate large refunds. One particular scheme involves claiming business losses (generally using paperwork purchased from the scheme’s promoters) when there is no legitimate business activity. These false claims may lead temporarily to large refunds, but making them is illegal and could result in serious legal and financial consequences.

Remember, if it sounds too good to be true, it probably is.

Serious consequences

The CRA has the necessary tools to help make sure everyone pays the taxes they owe. When loss claims are disallowed or taxpayers are convicted of tax evasion or tax fraud, they have to repay the full amount of taxes owing and any amounts falsely obtained, plus interest. Civil penalties may also be assessed by the CRA, and the courts can impose fines and even jail time.

The CRA has a solid track record in identifying and bringing to justice taxpayers who attempt to avoid their tax obligations. If convicted, you may be sentenced to up to five years in jail. In addition, you may have to pay court fines of up to 200% of the taxes owing.

Come to us before we come to you

Have you received questionable tax advice and wondered if it was truly legitimate? Did you willingly participate in an illegal tax scheme? If so, come forward and correct your tax affairs through the CRA’s Voluntary Disclosures Program (VDP). Filing a valid voluntary disclosure before the CRA starts compliance action means you could pay only the taxes you owe plus interest, and you may avoid penalties and potential prosecution.